You Don't Ever Have to Be 'All in' or 'All Out' in Investing

The Weekend Edition is pulled from the daily Stansberry Digest.


Today, when it comes to the stock market, you'll find a healthy dose of concern...

Stocks have never been more "expensive"...

Even the most bullishly-inclined among our Stansberry editors agree that stock prices in general, across the board, are trading at eye-popping numbers compared with the underlying value of their companies.

As we wrote in the Stansberry Digest last month, the stocks that make up the benchmark S&P 500 Index were on track to record their highest price-to-earnings (P/E) ratio in decades.

This is a common measure of how much you're paying for a stock for the amount of earnings you receive in return from owning it. And the numbers showed that stocks across the board had gotten about 50% more "expensive" in 2020, trading for 30 times earnings.

New Year's Day didn't change anything...

Today, the S&P 500's P/E ratio remains near 30, its highest level since the dot-com bubble. Whenever investors hear that phrase, it understandably gets a lot of attention...

President Joe Biden's inauguration this past Tuesday brought another round of new all-time intraday highs for the S&P 500 and tech-heavy Nasdaq Composite Index. And those highs were in part boosted by strong earnings results from a number of big-name companies, like Netflix (NFLX)...

But it's a story we've seen before...

Record-high valuations – primarily because of the Federal Reserve throwing unimaginable amounts of money into the system and keeping interest rates at record lows – are pushing folks who seek any kind of meaningful return into buying stocks.

We've now experienced 10 months of U.S. stocks trending higher in the face of various risks, mainly a once-in-a-century global pandemic. It's a Melt Up. As Chris Igou wrote in DailyWealth this week...

This is exactly what you'd expect during a Melt Up like we're experiencing today. Investors buy into the incredible rally, no matter the price. This drives valuations through the roof.

At the same time (and very importantly), Steve emphasized that record-high valuations alone are not a reason to say that the "Melt Down" is imminent, as in tomorrow or the next day...

Stocks went higher and higher during the dot-com bubble, even at expensive levels, before it all came crashing down. But there's no getting around it... Late-1990s prices should grab your attention and certainly do represent an early warning sign.

So what's an investor to do?

More specifically, what's a long-term investor to do?

Well, you could try to time the market to the exact day, or even just the week. But good luck doing that... making the exact right trades at the exact right times... and still being able to sleep well at night.

Or as we've said in the past, you can get "most of it right," be calculated, and take advantage of the trend up (and make money) while not being oblivious to the ultimate Melt Down that will come.

That's why Steve and his team have been warning readers about preparing for that Melt Down lately... And on a conference call with all Stansberry analysts and editors this week, Brett Eversole, Steve's lead analyst, reminded us of one way to do it: Think about the rest of the world.

It's easy to get wrapped up in the idea that U.S. stocks are the only ones that exist. But they're not. Brett reminded us of this fact and touched on two main points while serving up this needed dose of reality...

As an investor, you don't ever have to be "all in" or "all out"...

In other words, you don't have to be right... And you can be wrong.

This isn't the first thing that usually comes to mind for most people, especially those of us who are focused on getting it right, or perhaps "squeezing every bit of toothpaste" out of the Melt Up tube, as our Director of Research Austin Root colorfully put it on our conference call.

But it's a piece of invaluable advice, especially if you're frozen or indecisive on a particular investment decision. For example, you might be afraid that U.S. stocks are ridiculously expensive and going to sell off massively sometime soon... However, at the same time, maybe you are also hesitant to sell "too early" and miss out on additional gains.

With this in mind, Brett went on to say that if you're concerned about being all-in on the record-high valuations of U.S. stocks right now, why don't you consider buying some other ones?...

Take a look at emerging markets, for instance...

These stocks have been beating the pants off the S&P 500 lately, and they're still less "expensive" compared with U.S. stocks.

We're talking about companies from places like China, India, and Brazil, just to name a few. These are global economies that are on the rise, but not yet at the developed level of the U.S.

Steve and his team identified a buying opportunity in emerging market stocks way back in September, when they detailed that these developing markets would benefit from a weaker U.S. dollar. And as we know, this has been the case lately...

Today, the dollar has been in a bear market since its March 20 peak... It has lost roughly 11% of its value as measured by the U.S. Dollar Index over the last nine-plus months.

Meanwhile, the iShares MSCI Emerging Markets Fund (EEM) has rallied more than 75% over that same span and has an average P/E ratio of about 20, compared with a roughly 60% return for the S&P 500 and its P/E ratio near 30.

Importantly, Brett introduced the idea of looking at emerging-market stocks in the context of "reallocating" a portfolio...

That isn't the most exciting phrase you'll ever hear... But experienced investors will tell you that it can be more important than identifying any one particular hot stock or even timing the market.

You've heard us – and many of our editors – trumpet the ideas of proper asset allocation, position sizing, and risk management. But frankly (and unfortunately), we know most people interested in making and keeping money simply don't take these ideas seriously.

It's hard, even if you filter your information and research through a single lens like Stansberry Research. Take today's investing dilemma, for example... U.S. stocks are expensive, but they keep going higher.

You don't want to miss out on more gains, but you don't want to take a double-digit hit either... So you find a good alternative, like emerging market stocks. But beyond that, there are still unresolved questions, like how much money do you allocate to them, even if you believe that they're a better value than buying U.S. stocks today?

That can be a complicated question to answer... And a lot depends on your goals for your portfolio (assuming you have defined them) and how much risk you're willing to take (assuming you can calculate a number to potentially lose that equals your emotional tolerance).

These are tall tasks, and they can sound intimidating or unattainable... But they're critical and doable things to enjoy long-term investing success. As our founder Porter Stansberry once wrote...

For some reason, it seems that most people don't take good investment decisions (asset allocation, position sizing, and risk management) seriously...

Likewise, it seems like some law of human nature dictates that most people will only buy investments that are extremely risky and volatile. Subscribers tend to completely ignore our best advice, which is to build a portfolio around a firm foundation of super-high-quality, low-volatility stocks.

I'd estimate about 90% of your actual investment results are dictated by your allocation decisions – how much capital you put into each position – not which particular stocks you buy.

So here's where we want to bring today's essay full circle...

If you want to "piece it all together" – meaning the best of our research, stock picks, macro analysis, everything – in a properly diversified portfolio... no matter what day or week we're talking about, whether it's a smart time to consider emerging markets or anything else, we have a better solution for you...

What if you want what our colleague Dan Ferris, editor of Extreme Value, likes to call "true diversification" and take asset classes like gold, silver, and even bitcoin into consideration in addition to U.S. and foreign stocks?

The solution is an "all weather" approach, a set of actionable model portfolios (based on your investing goals) that takes pieces from all our publications and pares them into properly sized positions in a fully allocated portfolio.

In 2020, these portfolios did exceptionally well... Our "capital" portfolio showed gains of 35%... the income-focused one earned 8%... and the "total" portfolio returned 20%. They all beat their respective benchmarks by sizeable margins.

We can't say it much better than Porter did, back when we launched this suite of products...

If you don't take a whole-portfolio approach... if you inevitably put too much capital in the wrong stocks, and not enough in the right ones... what are you going to do about it?

You have two choices...

You can satisfy one well-known definition of insanity and keep repeating the same experiment while expecting different (better) results.

Or – option No. 2 – you can finally begin to invest like a pro. You can finally begin to capitalize on the research you've already bought. You can allocate appropriately. You can follow your stop-loss discipline. You can finally "get there."

We urge investors to get their financial house in order at the start of every year... And years like 2020 should show everybody why. You want to make sure you have the basics covered and understand the details of any of your investments after that.

The Melt Up backdrop tells most investors that there might not be a proven alternative to U.S. stocks to make a meaningful return today, but there are... And there are warning signs that a Melt Down could be ahead, even if not exactly tomorrow or the next day.

The best way to handle what Mr. Market has in store is to prepare.

All the best,

Corey McLaughlin

Editor's note: Steve, Austin, and Dr. David Eifrig are preparing to answer some of the most pressing questions about investing right now... And they're ready to share all the details about how you can maximize your gains with a goal-oriented portfolio. Don't miss the full discussion on Tuesday, January 26 at 8 p.m. Eastern time. Click here to RSVP now.

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